Married Looking for Exit Plan in ~3 Years...

[jt999]

Not from my wife but from Corporate.

Wife (46) and I (48) have 2 children. One child recently graduated college and started working in June. Our other is senior in high school and will begin college in 2020.

401Ks/IRA's - 1.205M (AA is 60% Stocks/20% Bonds/20% Cash Currently)

Home - FMV 450K (Paid)- remodeled kitchen last year. Needs about 20K of work. Plan to put on market 2020/2021 and move closer to my spouse's work.

Taxable Account - 56K

Savings - 97K - we like to keep more cash on hand than is needed but will not add to this going forward.

529 - 90K

Small Pension - 10-15K/annually

SS - 17K and 20K annually, estimated

No Retiree Healthcare

Total Net Worth ~2M

Net Income (after 401K contributions) - 20K Month - spouse doubled salary in last 2 years so this has jumped recently

Expenses - 6K Month

Looking for advice - Any recommendations for how we can deploy 220K annually to FIRE in ~Years? Our Savings Target is 250K Annually, of which 30K is Targeted for College.

We would estimate we need 9K/month after-tax for travel, healthcare, etc. for the 1st few years and then slightly less after a few years - we are considering moving overseas (dreaming of Italy) where we would pay higher taxes but lower healthcare.

We are open to 72T, Annuities, Roth Conversions - Or should we just continue to put money into the Taxable Account?

 

[Golden sunsets]

Unless my math is faulty, I don't see how you can get there in just 3 years. To be sure, with your savings rate ($220,000 per year net of 529 money) you will get there and fairly quickly, but In three years, you'll add $660,00 to an existing portfolio of about $1,360,000, so give or take $2,000,000 plus some appreciation. If you anticipate expenses including taxes of $108,000, assuming a somewhat conservative withdrawal rate of 3.5%, you would need approximately $3,100,000. Your pension and SS will reduce your required WD rate at some point, but I wouldn't feel comfortable spending 4% right off the bat, given your age.

After maxing out your pretax contributions, I would go with index funds in your taxable account with an AA in accordance with your risk profile. That way you will have sufficient funds to carry you through to 59.5.

 

[griffithee]

Awww man, I thought you were looking for advice on how to knock of your spouse. This forum was starting to get real exciting!!!!

 

[joeea]

Not from my wife but from Corporate.

That's good!

Home - FMV 450K (Paid)- remodeled kitchen last year. Needs about 20K of work. Plan to put on market 2020/2021 and move closer to my spouse's work.

How much will the new home cost? Or were you planning to rent?

Small Pension - 10-15K/annually

Starting when? Joint and survivor? COLAed?

SS - 17K and 20K annually, estimated

Starting at what age?

Expenses - 6K Month

We would estimate we need 9K/month after-tax for travel, healthcare, etc. for the 1st few years and then slightly less after a few years - we are considering moving overseas (dreaming of Italy) where we would pay higher taxes but lower healthcare.

So current expenses are 6k/mo, but expenses in retirement would be 9k/mo after taxes?

I'm not seeing how you could do this in three years. But you haven't filled in all the details.

 

[joeea]

If you anticipate expenses including taxes of $108,000

I think that was $108k after taxes.

 

[pb4uski]

I think taxable account is your best bet.... invested either in tax-free municipal bonds or in domestic equities that qualify for preferenced tax rates... and that is after maxing out any tax-deferred contributions since you'll be in a high tax bracket.

Prepare a plan using Quicken Lifetime Planner, included in Quicken Deluxe and higher versions. Also, you could use FIRCalc. I get the following rough numbers:

Spending once pension and SS start of $23k/yr.... $72k spending less $12k pension less $37k SS = $23k gap; divided by 3.5% SWR = $657k funding needed

$12k pension plus $37k SS = $49k pension income * (67-47-3) = $833k funding needed

$36k a year for travel, etc for first few years = $108k funding needed

Total funding needed = $1,598k

Currently have $1,205k tax-deferred savings + $56k taxable + $97k savings = $1,358k

Will add $660k over next 3 years, bringing total to $2,108k.

I think you can make it.

 

[ivinsfan]

Does your spouse plan to continue working into the future? You aren't very clear on that point.

 

[Golden sunsets]

I think that was $108k after taxes.

So their expenses including taxes are even greater.

 

[mistermike40]

Awww man, I thought you were looking for advice on how to knock of your spouse. This forum was starting to get real exciting!!!!

 

[HI Bill]

Will add $660k over next 3 years, bringing total to $2,108k.

+1.

Questions for the OP:

1. What will the new house cost that you plan to buy after moving?
2. What will your moving expenses be?
3. How much will your wife bring in after you retire, and for how many years?

Looks close, but you may need ~4 or 5 more years (instead of 3), depending on the answers to the questions above, and the market returns.

A significant problem is that ~$1.2 of ~$2M in invested assets will be in the 401(k). You will likely need to use 72t (SEPP) to access a portion of those funds.

 

[joeea]

So their expenses including taxes are even greater.

Yes!

 

[jt999]

Thank You Everybody for your feedback.

To answer your questions:
We’re assuming we would need 108K after taxes – the increase from our current 6K month in expenses is due to plan to rent at least until we know where we will settle (currently mortgage free) + potentially increased cost for healthcare for a few years. At most, spouse would work for 2 years beyond my end date. From a tax standpoint, I’m not sure we’re benefitting all that much from both of us working - 400+K versus 500+K Gross (although I would lose the 401K contribution and matches for a few years) and I worry with her commute - having her closer to work would really help her as it would shorten her workday by 90 minutes. If we did buy a residence in the future, we would target 250-300K max.

10K Annually Non-COLA’d – (if I exited in 18 months at 50 and start it at 55 YO) – If I waited until 65, it would be ~19K Annually (First Death, 10 Year Certain)

17K SS Starting at Age 62 – I believe this was after entering 0 for 10 Years of Earnings

Spouse - 20K SS Stating at Age 67 (9 Years After My SS Claim) - after entering 0 for 10 Years of Earnings

 

[SecretlyFI]

Are you sure you can sock away $220k a year for this? If net income is 20k per month, that’s 240k per year. Gross back up for 401k (assume that’s part of the savings target), $19k for 2 people: 240 +19+19=278. Less expenses of 6k per month, or 72k per year leaves $206k against a savings target of $250k, including 30k for the 529 plan? Or did I mis-read some of the math?

 

[jt999]

Socking it Away

Yes, I am confident in those numbers.

The 20K/month is Our Monthly Net, after our 401K contributions and taxes and excludes bonus payouts (which obviously vary but could add another ~100K+ net of taxes) so 220K annually should be achievable.

 

[RxMan]

I would work on contributing to your taxable accounts. You’ve done well but the majority of your net worth is in tax advantaged accounts. A three year plan would put you both in the upper 40s and early 50s age bracket which means you need funds outside tax advantaged accounts to help cover the expenses in those early years of FIRE.

 

[haha]

Not from my wife but from Corporate.

That tends to be much cheaper than the marital version, and also a lot more pleasant.

Ha

 

[aida2003]

I get the following rough numbers:

Spending once pension and SS start of $23k/yr.... $72k spending less $12k pension less $37k SS = $23k gap; divided by 3.5% SWR = $657k funding needed

$12k pension plus $37k SS = $49k pension income * (67-47-3) = $833k funding needed.

$36k a year for travel, etc for first few years = $108k funding needed

Total funding needed = $1,598k

Currently have $1,205k tax-deferred savings + $56k taxable + $97k savings = $1,358k

Will add $660k over next 3 years, bringing total to $2,108k. I think you can make it.

@pb4uski, I like how you break down the math for people, but this time I cannot follow it. Could you please elaborate on how you came up with the math in the bold sentences?
What is "Spending once pension and SS start of $23k/yr"?
I didn't notice $12k pension either. Would this be because $12k is within the range of 10-15k?
The way I follow is: $108k (after-tax wanted) - $12k pension - $37k SS = $60k (rounded up) gap when they are 65-67 y.o. Then they need extra to account for taxes, too.

Since they want wish to quit in 3 years, they'll still be 50+ y.o. I do not think $36k/year*3 years of traveling budget will be sufficient. I'd say 10 years for traveling at least.

Anyway, if you could clarify the math flow I would appreciate it.

 

[pb4uski]

@pb4uski, I like how you break down the math for people, but this time I cannot follow it. Could you please elaborate on how you came up with the math in the bold sentences?
What is "Spending once pension and SS start of $23k/yr"?
I didn't notice $12k pension either. Would this be because $12k is within the range of 10-15k?
The way I follow is: $108k (after-tax wanted) - $12k pension - $37k SS = $60k (rounded up) gap when they are 65-67 y.o. Then they need extra to account for taxes, too.

Since they want wish to quit in 3 years, they'll still be 50+ y.o. I do not think $36k/year*3 years of traveling budget will be sufficient. I'd say 10 years for traveling at least.

Anyway, if you could clarify the math flow I would appreciate it.

The $12k pension was because the OP stated it would be $10-15k... so I split the difference.

The OP states expenses of $6k/month which is $72k/year. Even if that $72k was purely withdrawals from tax deferred accounts the tax would be modest... about $6k federal tax.

The $9k/month or $108k/year is only for the first few years to fund higher travel and that is where the $36k/year for 3 years comes from ($9k/month-$6k/month)* 3 years. I think $36k/year extra for travel is a very generous travel budget.

Now if the $6k/month is the OP's current expenses and the expect to spend $9k/month in retirement and only a little less later (after-travel)... the the calculations would need to be revised since they presume $6k of normal expenses since that is what the OP said.

Also the OP said they would travel for a "few years"... and I interpreted that to mean 3 and not 10... but in any event $108k is a pretty generous travel kitty whether it is used for 3 years or 5 years or 10 years.

My post was principally in response to a prior post that said they didn't see how they could get there.... and I thought it was quite possible.

 

[aida2003]

pb4uski, that for providing more detail, but my brain is still tripping on the $833k funding. I missed the $6k/mo *regular* spending vs. $9k/mo *for a few years.

So, $657k funding + $108k travel funding are clear. Now I'm stuck on this $833k.

Shouldn't it be $72k*17 instead? It would be $6k/mo after his wife quits at 50 until SS & pension at 67?

A general question...
If a lump sum in pension is not allowed by the company how to determine when it's more beneficial to start taking a non-cola pension? A *much* smaller amount at 55 or wait until 65? It feels 'it's my money and I wish to have it early', but OTOH it might to interfere with Roth IRA conversions and ACA cliff, but perhaps I'm totally off the mark here, and people can help me understand this.

Thanks

 

[pb4uski]

pb4uski, that for providing more detail, but my brain is still tripping on the $833k funding. I missed the $6k/mo *regular* spending vs. $9k/mo *for a few years.

So, $657k funding + $108k travel funding are clear. Now I'm stuck on this $833k.

Shouldn't it be $72k*17 instead? It would be $6k/mo after his wife quits at 50 until SS & pension at 67? ...

The $833k is needed to provide $49k a year from ER at 50 (OP is 47 and plans to retire in 3 years) and when pension and SS start at age 67... 17 years at $49k a year is $833k.

Then also during those years they will be withdrawing 3.5% from the $657k fund or $23k a year.

So the two withdrawals will provide them with $72k a year.

The $23k a year withdrawal is inflaton adjusted and lasts for 30+ years... the $49k a year withdrawal is inflation adjusted from interest on the $833k and only lasts for 17 years at which point it is replaced by the pension and SS.

 

[aida2003]

pb4uski, thanks so much. Now that you've clarified all it feels funny that I couldn't decode your original calculation myself. So, this $23k is included in the 'perpetual fund' of 3.5% SWR that starts being used up as soon as they both stop earning income and start withdrawing.

When people do such back of the envelope calculations, I'm curious how close or far they are from the results run on FireCalc, Fidelity, etc.? I'll have to test on our own numbers and see what I get.

Thanks for your patience and walking me through

 

[jIMOh]

Not from my wife but from Corporate.

Wife (46) and I (48) have 2 children. One child recently graduated college and started working in June. Our other is senior in high school and will begin college in 2020.

401Ks/IRA's - 1.205M (AA is 60% Stocks/20% Bonds/20% Cash Currently)

Home - FMV 450K (Paid)- remodeled kitchen last year. Needs about 20K of work. Plan to put on market 2020/2021 and move closer to my spouse's work.

Taxable Account - 56K

Savings - 97K - we like to keep more cash on hand than is needed but will not add to this going forward.

529 - 90K

Small Pension - 10-15K/annually

SS - 17K and 20K annually, estimated

No Retiree Healthcare

Total Net Worth ~2M

Net Income (after 401K contributions) - 20K Month - spouse doubled salary in last 2 years so this has jumped recently

Expenses - 6K Month

Looking for advice - Any recommendations for how we can deploy 220K annually to FIRE in ~Years? Our Savings Target is 250K Annually, of which 30K is Targeted for College.

We would estimate we need 9K/month after-tax for travel, healthcare, etc. for the 1st few years and then slightly less after a few years - we are considering moving overseas (dreaming of Italy) where we would pay higher taxes but lower healthcare.

We are open to 72T, Annuities, Roth Conversions - Or should we just continue to put money into the Taxable Account?

I've read the replies
Here are a few things missing in replies

1) No one has suggested annuities (I agree with this- don't need them)
2) Note that everyone is focused on savings rates, not the 60-40/ how your money is invested (I think this logic is correct, just pointing it out)
3) You did not give a time frame on selling house (adding $450k to portfolio) and then buying again (do you think the entire $450k would be needed).

Here is my math:
9k/mo=$108k annually
4% rule (x25)= $2.7 M needed ($2.7 M of invested assets). There can be a debate as to whether to sell house and include that, or sell house and set money aside to buy new real estate.

I also agree with the poster which used 3.5% instead of 4% based on retiring so young.

That math would be
3.3% (x33) $3.5 M of invested assets needed.

IMO the goal is max $3.5 M needed, however there is good probability you could retire on less than that- these factors would allow number to be less
1) Spouse income defers some of $108k annual need into retirement
2) the $9k monthly estimate budget is reduced
3) You adopt a withdraw plan which is flexible if market has a negative event early in retirement

You have $1.2 M now, need $3.5 M and estimate you can contribute $220k per year for 3 years into retirement. I do not include the cash or the house in these calculations. I would suggest the following

1) Invest new money with following priorities
1a) max out 401k/ tax deferred options
1b) invest in taxable accounts with consideration to dividend paying stocks (more on this later)
2) Look for money to double every 9 years. Meaning in 9 years, an 8% return would double the money. You want to retire in 3 years, money should double in 9. There are 6 years of waiting to pull trigger which could be debated. This double could take $1.4 M and turn it to $2.8 M which is minimum needed based on my first projection above.

For retirement, you need to think through how to take distributions. One reason I suggested dividend paying stocks for taxable account is if you can find a way to live off dividends while rest of accounts grow, you increase likelihood of success. There is more than one distribution technique from portfolio, and it appears you are more focused on accumulation than the distribution at this point.

 

[aida2003]

Well, Jim, the OP needs $9k/mo for the first few years and then $6k/mo. Would that change your math of the outcome?

 

[pb4uski]

$3.5m is crazy. Less than half that. See post #6.

I think taxable account is your best bet.... invested either in tax-free municipal bonds or in domestic equities that qualify for preferenced tax rates... and that is after maxing out any tax-deferred contributions since you'll be in a high tax bracket.

Prepare a plan using Quicken Lifetime Planner, included in Quicken Deluxe and higher versions. Also, you could use FIRCalc. I get the following rough numbers:

Spending once pension and SS start of $23k/yr.... $72k spending less $12k pension less $37k SS = $23k gap; divided by 3.5% SWR = $657k funding needed

$12k pension plus $37k SS = $49k pension income * (67-47-3) = $833k funding needed

$36k a year for travel, etc for first few years = $108k funding needed

Total funding needed = $1,598k

Currently have $1,205k tax-deferred savings + $56k taxable + $97k savings = $1,358k

Will add $660k over next 3 years, bringing total to $2,108k.

I think you can make it.

 

[jIMOh]

Well, Jim, the OP needs $9k/mo for the first few years and then $6k/mo. Would that change your math of the outcome?

Yes, the purpose of my math was to give mins/maxes to set goals and expectations, not give a specific plan. I did not do a year by year analysis of spending when calculating macro savings amounts for goal setting.